FHA vs. VA loans

23 January 2019

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias.
But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

Ease the financial burden of buying a home with these government-backed loans.

Buying a home is among the biggest and most exciting commitments you’ll ever make. But how do you choose the right financing? Like every mortgage, FHA and VA loans have their advantages and disadvantages.

How do FHA loans differ from VA loans?

Both are government-backed mortgage programs, but they come with different eligibility requirements, terms and loan limits.

FHA loans are insured by the Federal Housing Administration, an agency under the US Department of Housing and Urban Development (HUD). They’re issued by federally approved banks or financial institutions.

With FHA loans, the borrower pays for mortgage insurance to protect the lender against loss if the borrower defaults on the loan. This insurance results in a 1.75% upfront premium at closing, along with monthly mortgage insurance payments for the life of the FHA loan.

You can qualify for an FHA loan with a FICO score of 580 or higher and a down payment of at least 3.5% of your loan. You can apply with a credit score of 500 to 579, but you’ll need to put down 10% as a down payment. Generally, the lower your credit score, the higher your loan’s interest rate.

The Federal Housing Authority sets maximum mortgage limits for FHA loans that vary by state and county. In 2019, nationwide limits range from $314,827 to $726,525.

Thanks to its flexible eligibility requirements, the FHA is the largest mortgage insurer in the world.

Unlike FHA loans, VA loans are open to military members only. Federally guaranteed by the US Department of Veterans Affairs (VA), the VA loan was designed to offer long-term financing to eligible veterans. Widows or widowers are eligible as long as they haven’t remarried.

The VA doesn’t guarantee the full amount of the loan. Instead, it insures a portion of the loan from qualified lenders, like Veterans United, which varies by county. If a borrower defaults on their loan, the lender is protected by the VA.

To be eligible for a VA loan, both lenders and borrowers must meet a list of criteria.

The VA loan has a big selling point: No down payment is required. To qualify, the loan amount must not exceed the loan limit for the county, and the sales price must not exceed the appraised values.

There’s no need for private mortgage insurance either. In most cases, borrowers pay a funding fee — a one-time charge equal to 1.25% to 3.3% of the loan amount.

The VA has no credit requirements, but lenders can impose their own rules. Typically, VA lenders are looking for a credit score of 620 or higher.

FHA loans

VA loans

Eligibility

Anyone who meets the income and credit score requirements

Eligible veterans and surviving spouses who have not remarried

Institutional support

Federal Housing Administration

Veterans Administration

Credit score requirement

500 or higher

None

Down payment

3.5% to 20%

None

Lender options

Any FHA-approved lender

Any VA-approved lender(The VA can lend directly, but it’s rare.)

Interest rates

Subject to market conditions and negotiable between the lender and borrower

Subject to market conditions and negotiable between the lender and borrower

An upfront premium equal to 1.75% of the loan amount and paid at closing.

An annual premium paid monthly and based on your loan and loan-to-value ratio. Expect to pay from 0.80% to 1.05% of your loan balance.

FHA insurance required. To stop paying premiums, you need to pay off your loan or refinance.

Lower loan ceiling. The maximum you can borrow varies by county. If you’re buying in an area with low supply and high demand, an FHA loan may not cover the costs.

Property limitations. Heavily discounted homes and fixer-uppers may not qualify. Condos can be challenging too.

Long appraisal process. The VA program is known for its strict minimum property requirements (MPRs). Appraisers assess the safety, sanitation and structural integrity of a property, which can take weeks or months.

Increasing funding fee. Each time you use a VA loan, the flat funding fee increases.

Lender overlays. Because the VA guarantees only 25% of the loan, lenders require a list of minimum credit scores, maximum debt-to-income ratios and more.

Down payment for manufactured homes. If you use a VA loan to buy a manufactured home, you’ll put down at least 5%.

Full amount not guaranteed. The VA doesn’t guarantee the full amount of your loan. You may need to meet additional requirements from the bank.

Which option is best for my needs?

It depends on your situation. FHA loans are popular, especially with first-time homebuyers earning a low to median income. Given lenient eligibility requirements, they’re a good option for borrowers with high debt-to-income ratios and low credit scores.

To avoid being blindsided, factor the required mortgage insurance into your budget. You’ll pay an upfront premium at closing and then make monthly payments for the life of the mortgage.

VA loans don’t require a down payment or mortgage insurance, which cuts your overall costs significantly. They also come with attractive tax perks and relaxed credit requirements. But they’re open to military members only.

The big question: Do you qualify for a VA loan? These loans are notorious for strict home assessments. So if you’re eligible, your best bet is to find a home that’s ready to move into to speed up the appraisal process.

Compare up to 4 providers

Bottom line

While FHA loans are flexible and easier to apply for, borrowers are hit with monthly insurance payments that last the life of the mortgage. But VA loans are exclusive: Requiring no down payment, they’ve opened the homeownership doors to many military members.

Katia is a freelance writer from sunny Sydney, Australia. Her writing — and curiosity — has taken her around the world, and she now calls chaotic, creative New York home. She navigates insurance and finance for Finder, so you can splash your cash smartly (and be a pro when the subject pops up at dinner parties).

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.

We endeavor to ensure that the information on this site is current and accurate
but you should confirm any information with the product or service provider and
read the information they can provide. If you are unsure you should get independent
advice before you apply for any product or commit to any plan.

finder.com is an independent comparison platform and information service that
aims to provide you with the tools you need to make better decisions. While we
are independent, we may receive compensation from our partners for featured placement
of their products or services. We may also receive compensation if you click on
certain links posted on our site.

Thank you for your feedback.

Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.

Advertiser Disclosure

finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.